Mediaco Holding Inc.: Form 10-Q for the period ended Mar 31, 2025

Special Note on Forward-Looking Information: You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. Certain statements included in this Quarterly Report or in the financial statements contained herein that are not statements of historical fact, including but not limited to those identified with the words “expect,” “believes,” “should,” “will” or “look” are intended to be, and are, by this Note, identified as “forward-looking statements,” as defined in the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future result, performance or achievement expressed or implied by such forward-looking statement. Such factors include, among others:

• Potential conflicts of interest with SG Broadcasting and our status as a “controlled company”;
• Our ability to operate as a standalone public company and to execute on our business strategy;
• Our ability to compete with, and integrate into our operations, new media channels, such as digital video, live video streaming, YouTube, and other real-time media delivery;
• Our ability to continue to sell advertising time or exchange advertising time for goods or services;
• Our ability to use market research, advertising and promotions to attract and retain audiences;
• U.S. regulatory requirements for owning and operating media broadcasting channels and our ability to maintain regulatory licenses granted by the FCC;
• Pending U.S. regulatory requirements for paying royalties to performing artists;
• Inflation and interest rate risk;
• A potential recession, economic downturn, and stagflation;
• The impact of a potential temporary federal government shutdown and other political developments, including

immigration, political protests or unrest, boycotts, or other social and political developments;

• Increased technology costs and supply chain issues;
• Industry and economic trends within the U.S. radio and television industry, generally, and in the markets in which we operate, in particular;
• Changes in U.S. and global economies and financial markets, including economic activity, employment levels, global trade relations, new or increased tariffs imposed by the U.S. and foreign governments and other factors driving trade uncertainty;
• The effect of such economic conditions on advertising activity;
• Our ability to successfully attract and retain on-air talent;
• Our ability to successfully produce and distribute on-air programming;
• Our ability to maintain and expand distribution platforms and station affiliations;
• Our ability to finance our operations or to obtain financing on terms that are favorable to MediaCo;
• Our ability to successfully complete and integrate acquisitions, including the recent transactions with Estrella Broadcasting, Inc. and any future acquisitions;
• The accuracy of management’s estimates and assumptions on which the Company’s financial projections are based; and
• Other factors mentioned in documents filed by the Company with the Securities and Exchange Commission.

For a more detailed discussion of these and other risk factors, see the Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2025. MediaCo does not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.

GENERAL

The following discussion pertains to MediaCo Holding Inc. and its subsidiaries (collectively, “MediaCo” or the “Company”).

We own and operate two radio stations located in New York City, which serve the New York City demographic market area that primarily target Black, Hispanic, and multi-cultural consumers and as a result of the Estrella Acquisition, Estrella’s network, content, digital, and commercial operations, including network affiliation and program supply agreements with Estrella for its 11 radio stations serving Los Angeles, CA, Houston, TX, and Dallas, TX and nine television stations serving Los Angeles, CA, Houston, TX, Denver, CO, New York, NY, Chicago, IL and Miami, FL. Among the Estrella brands that joined MediaCo are the EstrellaTV network, its influential linear and digital video content business, Estrella’s expansive digital channels, including its eight free ad-supported television (“FAST”) channels - EstrellaTV, Estrella News, Cine EstrellaTV, Estrella Games, EstrellaTV Mexico, Curiosity Explora, Curiosity Motores, and Curiosity Animales. See Note 3 — Business Combinations in our condensed consolidated financial statements included elsewhere in this report for additional information on the Estrella Acquisition.

We derive our revenues primarily from radio, television and digital advertising sales, but we also generate revenues from events, including sponsorships and ticket sales, licensing, and syndication. Our revenues are mostly affected by the advertising rates our entities charge, as advertising sales are the primary component of our consolidated revenues. These rates are in large part based on our stations’ ability to attract audiences in demographic groups targeted by their advertisers. The Nielsen Company generally measures radio station ratings weekly for markets measured by the Portable People Meter™ as well as providing television programming ratings services for the EstrellaTV network and the Estrella variable interest entity (“VIE”) local television stations. Because audience ratings in a station’s local market are critical to the station’s financial success, our strategy is to use market research, advertising and promotion to attract and retain audiences in each station’s chosen demographic target group.

Our revenues vary throughout the year. Revenue and operating income are usually lowest in the first calendar quarter, partly because retailers cut back their advertising spending immediately following the holiday shopping season.

In addition to the sale of advertising time for cash, stations typically exchange advertising time for goods or services, which can be used by the station in its business operations. These barter transactions are recorded at the estimated fair value of the product or service received. We generally confine the use of such trade transactions to promotional items or services for which we would otherwise have paid cash. In addition, it is our general policy not to preempt advertising spots paid for in cash with advertising spots paid for in trade.

The following table summarizes the sources of our revenues for the three months ended March 31, 2025 and 2024. The category “Other” includes, among other items, revenues related to network revenues and barter.

(dollars in thousands)

Roughly 20% of our expenses vary in connection with changes in revenue. These variable expenses primarily relate to costs in our sales department, such as salaries, commissions and bad debt. Our costs that do not vary as much in relation to revenue are mostly in our programming and general and administrative departments, such as talent costs, rating fees, rents, utilities and salaries. Lastly, our costs that are highly discretionary are costs in our marketing and promotions department, which we primarily incur to maintain and/or increase our audience and market share.

KNOWN TRENDS AND UNCERTAINTIES

The U.S. traditional radio and television broadcasting industries are mature industries and their growth rates have stalled. Management believes this is principally the result of two factors: (i) new media, such as various media distributed via the Internet, telecommunication companies and cable interconnects, as well as social networks, have gained advertising share against radio, television and other traditional media and created a proliferation of advertising inventory and (ii) the fragmentation of the radio and television audiences and time spent listening and viewing caused by satellite radio, audio and video streaming services, and podcasts has led some investors and advertisers to conclude that the effectiveness of broadcast advertising has diminished.

Our network and stations have aggressively worked to harness the power of broadband and mobile media distribution in the development of emerging business opportunities by capitalizing on the rapidly growing FAST marketplace through several operated channels, creating highly interactive direct-to-consumer (“D2C”) apps and websites with content that engages our audience and harnessing the power of digital video on our D2C platforms, YouTube, and connected TV publishers, vMVPDs and OEMs.

As part of our business strategy, we continually evaluate potential acquisitions of businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. We also regularly review our portfolio of assets and may opportunistically dispose of or otherwise monetize assets when we believe it is appropriate to do so. As part of the Estrella Acquisition integration, we developed a plan to close and relocate certain studio and marketing operations. In fulfilling this plan, we incurred involuntary termination costs of $0.2 million in the three months ended March 31, 2025, included in operating expenses on our condensed consolidated statements of operations included elsewhere in this report.

MediaCo has been impacted by the rising interest rate environment in the financial markets, driving the interest accrued and paid on the Emmis Convertible Promissory Note to increase prior to its maturity in November 2024 as well as providing uncertainty on our First Lien Term Loan and Second Lien Term Loan, which have variable interest rates. Although the Federal Reserve cut its benchmark rate several times in 2024, it has indicated a slower pace of rate reductions in 2025 due to persistent inflationary pressures. While the Federal Reserve has signaled a bias toward eventually lowering rates further it has also indicated that additional rate increases in the future may be necessary if inflation remains elevated, and there can be no assurance that the Federal Reserve will not make upwards adjustments to the federal funds rate, or that it will reduce the current rate, in the future.

CRITICAL ACCOUNTING ESTIMATES

During the three months ended March 31, 2025, there were no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on April 15, 2025.

We have considered information available to us as of the date of issuance of these financial statements and are not aware of any specific events or circumstances that would require an update to our estimates or judgments, or a revision to the carrying value of our assets or liabilities. Our estimates may change as new events occur and additional information becomes available, and our actual results may differ materially from our previously disclosed estimates.

RESULTS OF OPERATIONS

Executive Summary

The following discussion and analysis of the financial condition and results of operations of MediaCo Holding Inc. and its consolidated subsidiaries should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere herein.

The key developments in our business for the three months ended March 31, 2025 are summarized below:

• Net revenues of $28.0 million increased $21.3 million, or 318%, during the three months ended March 31, 2025 compared to net revenues of $6.7 million during the three months ended March 31, 2024.
• Operating loss of $4.7 million increased $1.2 million, or 35%, during the three months ended March 31, 2025 compared to operating loss of $3.5 million during the three months ended March 31, 2024.
• Net loss of $8.6 million increased $4.9 million, or 134%, during the three months ended March 31, 2025 compared to net loss of $3.7 million during the three months ended March 31, 2024.
• Cash flows provided by operating activities increased by $1.6 million, or 399%, during the three months ended March 31, 2025 to $2.1 million compared to cash flows provided by operating activities of $0.4 million during the three months ended March 31, 2024.
• Adjusted EBITDA for the three months ended March 31, 2025 was $1.4 million increasing 55% compared to Adjusted EBITDA of $0.9 million for the three months ended March 31, 2024.

Consolidated Operating Data

The following table sets forth a summary of each of the Company’s components of operating expense as a percentage of net revenue for the three months ended March 31, 2025 and 2024:

(Dollars in thousands)

Three-Month Period Ended March 31, 2025 compared to March 31, 2024

(Dollars in thousands)

Net revenues:

Net revenues increased during the three months ended March 31, 2025 primarily due to the new assets acquired in the Audio and Video segments as part of the Estrella Acquisition in April 2024.

Operating expenses:

Operating expenses increased during the three months ended March 31, 2025 primarily due to the new assets acquired in the Audio and Video segments as part of the Estrella Acquisition.

Corporate expenses:

Corporate expenses decreased for the three months ended March 31, 2025 primarily due to lower professional service fees driven by work related to the Estrella Acquisition in the prior year.

Depreciation and amortization:

Depreciation and amortization expense increased during the three months ended March 31, 2025 primarily related to the Estrella Acquisition. Depreciation and amortization expenses excluding expenses related to the Estrella Acquisition, remained relatively flat due to certain assets becoming fully depreciated in the prior year offset by new assets placed into service in 2025.

Loss on disposal of assets:

Loss on disposal of assets increased for the three months ended March 31, 2025 primarily due to the disposal of certain fixed assets during that three-month period, while there were no such disposals in 2024.

Operating loss:

See “Net revenues,” “Operating expenses,” “Corporate expenses,” “Depreciation and amortization,” and “Loss on disposal of assets” above.

Interest expense, net:

Interest expense increased during the three months ended March 31, 2025 due to the additional long-term debt related to the Estrella Acquisition.

Other income:

Other income increased during the three months ended March 31, 2025 compared to the prior year primarily because we began subleasing one of our facilities in this first quarter.

Provision for income taxes:

Provision for income taxes increased during the three months ended March 31, 2025 compared to the prior year due to tax amortization of the Company’s historical and newly acquired indefinite-lived intangibles, along with the impact of filing in additional state jurisdictions as a result of the Estrella Acquisition. See Note 8 — Income Taxes in our condensed consolidated financial statements included elsewhere in this report for additional details.

Consolidated net loss:

The increase in consolidated net loss was primarily due to the Estrella Acquisition. See “Net revenues,” “Operating expenses,”, “Corporate expenses,” “Depreciation and amortization,” “Loss on disposal of assets,” “Interest expense, net,” “Provision for income taxes,” and “Other income” above for additional details.

Performance by Business Segment

Audio Segment

The Company’s Audio Segment includes the Estrella MediaCo radio, digital and events operations as well as two New York radio stations that predate the Estrella Acquisition. Revenue, Operating expenses and Segment Operating Loss for our Audio Segment were as follows:

(Dollars in thousands)

Revenue and operating expenses from our Audio Segment increased $7.0 million and $6.2 million, respectively, during the three months ended March 31, 2025 compared to the same period in 2024, driven primarily as a result of the new assets acquired in the Audio segment as part of the Estrella Acquisition.

Video Segment

The Company’s Video Segment includes the results of the EstrellaTV network and all of the Estrella MediaCo television operations, including digital. Revenue, Operating expenses and Segment Operating Loss for our Video Segment were as follows:

(Dollars in thousands)

All Revenue and Operating expenses from our Video Segment in the three months ended March 31, 2025 were due to the new assets acquired as part of the Estrella Acquisition.

Corporate and other

Operating expenses related to Corporate and other decreased to $1.6 million for the three months ended March 31, 2025 compared to $3.4 million for the three months ended March 31, 2024, primarily due to lower professional service fees driven by work related to the Estrella Acquisition in the prior year.

Non-GAAP Financial Measures

Reconciliations of Net Loss to EBITDA and Adjusted EBITDA(1)

(Dollars in thousands)

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash provided by operations. Our primary uses of capital have been, and are expected to continue to be, capital expenditures, working capital, and acquisitions. Management anticipates the Company will be able to meet its liquidity needs for the next twelve months with cash and cash equivalents on hand, additional draws on its First Lien Term Loan, and projected cash flows from operations.

At March 31, 2025, the Company had cash, cash equivalents and restricted cash of $8.8 million and negative working capital of $22.3 million. At December 31, 2024, the Company had cash, cash equivalents and restricted cash of $6.9 million and negative working capital of $18.0 million. The increase in negative working capital was driven by the cancellation of certain programming rights contracts reducing the current portion of programming rights as well as increased accounts payable and accrued expenses, accrued salaries and commissions, and deferred revenue, partially offset by increased accounts receivable and cash and cash equivalents.

As part of its business strategy, the Company continually evaluates potential acquisitions of businesses that it believes hold promise for long-term appreciation in value and leverage our strengths. Any potential acquisitions have the potential to impact our liquidity position.

Operating Activities

Cash flows provided by operating activities were $2.1 million for the three months ended March 31, 2025, compared to $0.4 million for the three months ended March 31, 2024. The increase in cash provided by operating activities was mainly attributable to increases in deferred revenue driven by timing of cash receipts.

Investing Activities

Cash flows used in investing activities were $0.1 million for the three months ended March 31, 2025, primarily attributable to cash paid for various capital projects primarily related to the continued development of our digital platforms. Cash flows used in investing activities were $0.2 million for the three months ended March 31, 2024, primarily attributable to capital expenditures related to a new digital platform project and the build out of our new space for corporate offices.

Financing Activities

Cash flows used in financing activities were $0.2 million for the three months ended March 31, 2025, attributable to finance lease principal payments and settlement of tax withholding obligations. Cash flows used in financing activities were $0.1 million for the three months ended March 31, 2024, attributable to repurchases of our Class A common stock and settlement of tax withholding obligations.

Evaluation of Disclosure Controls and Procedures

The Company has established disclosure controls and procedures to ensure that information required to be disclosed in this quarterly report on Form 10-Q is properly recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. The Company's controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) at March 31, 2025. Based on such evaluation, our CEO and CFO concluded that, at March 31, 2025, our disclosure controls and procedures were not effective as a result of the previously identified material weaknesses disclosed below.

Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Internal Control over Financial Reporting

In connection with management’s evaluation of the effectiveness of internal control over financial reporting for the year ended December 31, 2024, management determined that the Company’s internal control over financial reporting was not effective due to the material weakness described below.

We did not design and maintain effective controls over the accounting for the Company’s business combination with Estrella. This included lack of appropriate oversight of third-party valuation specialists and insufficient design and implementation of controls over the completeness and accuracy of data and certain assumptions used in the valuation of intangible assets. We also did not maintain sufficiently competent resources with an appropriate level of accounting knowledge and experience commensurate with the accounting for business combinations.

Management, with the oversight of the Audit Committee, is working to remediate the material weaknesses in internal control over financial reporting and is taking steps to improve the internal control environment. The remediation efforts include:

• Hiring additional competent and qualified technical accounting and financial reporting personnel with appropriate knowledge and experience of U.S. GAAP and SEC financial reporting requirements;
• Training of new personnel and existing personnel in new roles on proper execution of designed control procedures;
• Designing and implementing controls over nonroutine and complex transactions, including reviews of third-party specialist work and information used in the operation of the controls; and
• Engaging third party experts to assist in analyzing and concluding on complex accounting matters.

The material weakness identified above will not be considered fully remediated until these additional controls and procedures have operated effectively for a sufficient period of time and management has concluded, through testing, that these controls are effective. Our management will monitor the effectiveness of our remediation plans and will make changes management determines to be appropriate. If not remediated, the material weakness could result in material misstatements to our annual or interim consolidated financial statements that may not be prevented or detected on a timely basis or result in a delayed filing of required periodic reports. If we are unable to assert that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected, and we could become subject to litigation or investigations by Nasdaq, the SEC, or other regulatory authorities, which could require additional financial and management resources.

Changes in Internal Control Over Financial Reporting

Other than the ongoing remediation activities listed above, there has been no change in our internal control over financial reporting during the quarter ended March 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In addition to the information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors described in such Annual Report on Form 10-K.